Question

Discuss why investors may be attracted to investing in ETFs rather than mutual funds.

Answer 1

Exchange traded funds involves the characteristics of both stocks and mutual funds. ETF is marketable security and it is traded on exchange, advantages of ETF as compared to mutual funds are -

ETFs can be purchased for as little as one share, this is not possible in the case of many of the mutual funds are there is minimum fund requirement for purchasing in mutual funds

ETFs have less internal expenses ratios as compared with mutual funds and ETFs do not charge 12b-1 fees or sale charges like many mutual funds

ETFs can be traded throughout the trading day but mutual fund can only be traded once in a day at the closing NAV price

ETFs reduces capital gains by doing similar kind exchange of stocks and it does not treated as taxable event but in case of mutual funds capital gains earned are treated as taxable event

THANK YOU PLEASE UPVOTE